02.25.2021 | Articles

MA Federal Court Favors Carrier in Business Interruption Coverage Suit

By Kelly E. Petter

The District of Massachusetts recently joined the majority of Courts across the country, including the Massachusetts Superior Court, dismissing insureds’ suits for business interruption coverage related to the COVID-19 pandemic. See Sas Int’l, Ltd. v. Gen. Star Indem. Co., 20-11864-RGS, 2021 U.S. Dist. LEXIS 31093 (D. Mass. Feb. 19, 2021); see also Verveine Corp. v. Strathmore Ins. Co, No. 2020-01378 (Mass. Super. Ct. Dec. 21, 2020). The Hon. Richard G. Stearns allowed the carrier’s motion to dismiss the case in its entirety finding that “construing the language ‘physical loss of’ to cover deprivation of a property’s use absent any tangible damage to the property distorts the plain meaning of the Policy.” Sas Int’l, Ltd. v. Gen. Star Indem. Co.,, at *7.

The Court rejected the insured’s argument that “direct physical loss of or damage to” property encompassed the COVID-19 virus noting that the phrase “require(s) some enduring impact to the actual integrity of the property at issue,” and it “does not encompass transient phenomena of no lasting effect, much less real or imagined reputational harm.” Id., at *5 (“Here, the term ‘physical,’ which ‘involv[es] the material universe and its phenomena’ and ‘pertain[s] to real, tangible objects,’ is an adjective modifying ‘loss,’ defined as, inter alia, ‘the disappearance or diminution of value.’ Black’s Law Dictionary (11th ed. 2019) (emphases added). The term ‘damage’ also entails ‘[l]oss or injury to person or property; esp., physical harm that is done to something or to part of someone’s body.’ Id.”). The Court reasoned that its conclusion was consistent with Massachusetts precedent and leading insurance treatise on which Massachusetts courts rely:

The requirement that the loss be “physical,” given the ordinary definition of that term, is widely held to exclude alleged losses that are intangible or incorporeal and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.

Id., at *5, citing, 10A Couch on Ins. § 148:46 (3d ed. 2020).

The Court also rejected the insured’s attempts to compare the COVID-19 virus to a permeating or pervasive odor, which Massachusetts and First Circuit precedent found susceptible to an interpretation of physical injury to property, because, unlike those cases, “COVID-19 is imperceptible; it does not endure beyond a brief passage of time or a proper cleaning, let alone render the property permanently uninhabitable.” Id., at *8.

The plaintiff insured attempted to plead around the scope of coverage to avoid dismissal by alleging that COVID-19 “damaged SAS’s insured property by attaching to surfaces on and within SAS’s insured property,” which “render[ed] it[s premises] dangerous, unfit, and unsafe for its intended and insured use.” Id., at *4. It also alleged, without any corroborating evidence, that COVID-19 contaminated the insured property. Id., at *10. However, the Court joined the majority of Courts across the country that found that similar allegations were insufficient to establish plausible entitlement to relief thereby resulting in dismissal. Id.

If you have any questions or would like further information about this decision or Business Interruption claims, please contact Attorney Kelly Petter at: 860-247-0644 or kpetter@hassettanddonnelly.com

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